Partnerships

Question 1

If you have a distribution of both cash and property and you don’t have enough basis to be reduced by both, then you do the following

Answer 1

First, the cash distribution is fully applied, then the property distribution is applied at adjusted basis until the partner’s basis is ZERO. No gain is generally recognized by the partner as a result of a current distribution unless the CASH distributed is in excess of the partner’s basis. In that case, the excess would be a gain to the partner (to avoid a negative basis).

ALL CASH CASH & PROP
Basis Basis
- Cash Dist -Cash Dist
-Prop Dist @NBV
Total Taxable if Total taxable up to zero
cash dist’s exceed
the Basis only

Question 2

The adjusted basis of Jody’s partnership interest was $50,000 immediately before Jody received a current distribution of $20,000 cash and property with an adjusted basis to the partnership of $40,000 and a fair market value of $35,000.

What is Jody’s basis in the distributed property?

Answer 2

Jody’s partnership basis

$ 50,000
(20,000) Cash distribution and Jody’s basis in cash
$ 30,000
(30,000) Property dist and Jody’s basis in the property
$ 0 Jody’s partnership basis after distributions

• If the partner’s basis in the partnership ($30,000) is less than the property’s basis ($40,000), the partner’s basis in the property is limited to her basis in the partnership ($30,000).

Question 3

When a partnership terminates:

Answer 3

1) Operations cease
2) 50% or more of the total partnership interest in both capital and profits is sold or exchanged within any 12 month period.
3) There are less than two partners (becomes a sole-proprietorship).

Question 4

When a partnership is terminated for tax purposes and its remaining partners decide to carry on the partnership business in a (deemed) new partnership

Answer 4

tax law treats this as a distribution of the prior partnership’s assets followed by a recontribution of the (deemed) distributed assets to the new partnership.

Question 5

A guaranteed payment is

Answer 5

payments to partners for services rendered or the use of capital WITHOUT REGARD TO partnership income.

Include Health Ins Paid for Partners with Guaranteed Pmts to Partners!!!

Question 6

A partner’s deductible loss is limited to (formula)

Answer 6

his basis plus any amounts that he is personally liable for (“at risk” provision). (He can’t take a loss for more than his basis)

Question 7

In a complete liquidation of a partnership, the partner’s basis in property received is the same as the adjusted basis of his partnership interest reduced for any monies actually received and is generally a nontaxable event. However, if a partner receives only money that exceeds his basis in the partnership, gain or loss is recognized.

Answer 7

Partners basis in property rec’d is the same as the adjusted basis of his partnership interest reduced for any monies actually received.

HOWEVER

If a partner receives ONLY $, and it exceeds his basis in the partnership, gain or loss is recognized for the excess.

Question 8

A partner’s basis in a newly formed partnership is determined as follows:A partner’s basis in a newly formed partnership is determined as follows:

Answer 8

example for a 50% partner:

Cash contribution
Plus Adjusted basis of non-cash property 26,000
Less Share of partnership liab’s ASSUMED BY OTHERS

= Net total

Question 9

The at-risk limitation provisions of the Internal Revenue Code may limit:

Answer 9

A partner’s deduction for his or her distributive share of partnership losses.

Question 10

Hot Assets are the following:

Answer 10

1) Cash Basis Unrealized Receivables (as if cash)
2) Appreciated Inventory (as if cash)
3) “Recapture Income” regarding depreciable assets owned by the partnership.

Treated AS IF CASH were taken.

Question 11

In a complete liquidation, a partner can only recognize a LOSS if

Answer 11

if only money, unrealized receivables, or inventory are received and if the basis of the assets received is LESS than the partner’s basis in the partnership. Then he can recognize a LOSS.

Question 12

If a partner receives a % interest from performing services for the partnership then his basis is

Answer 12

The FMV of what is RECEIVED. (i.e.- the FMV of his partnership interest).

Question 13

RECOURSE LIABILITIES

Answer 13

= LIABILITIES that they have to pay no matter what

Non-recourse liabilities are tied to a specific asset

Question 14

If you sell your partnership interest to someone else and have a gain, it is

Answer 14

a capital gain, unless it is from hot assets. If it is from Hot Assets - then it’s an ordinary gain.

Question 15

Example Question regarding liquidating distribution:
$60,000 Partnership Basis
- 30,000 Cash Distributed
- __?___ Auto w. FMV and Basis of $20,000
- 0 - Ending Partnership Basis has to be zero

Answer 15

The partners basis in the auto he received is actually $30,000 because that is what it took to zero out his partnership basis.

So his basis in the Auto is higher than the partnerships NBV and the FMV at the date of distribution.

Question 16

Limitations that apply in determining a partner’s deduction for that partner’s share of partnership losses?

Answer 16

Partners are subject to 3 Things:

1) basis limitations on losses,
2) the “at-risk” provisions and
3) the passive loss limitations on the losses passed through from the partnership.

Question 17

The holding period of a partnership interest acquired in exchange for a contributed capital asset begins

Answer 17

On the date the partner’s holding period of the capital asset began.

Question 18

A partnership tax year must have the same taxable year as the common taxable year of the partners that, in the aggregate, have interest greater than 50%, which is determined based on the “testing day,” the first day of the partnership’s tax year (not considering the majority interest rule).

Answer 18

…..

Question 19

Phrase to remember liquidating distributions

Answer 19

Zero Out to Get Out

Question 20

Any losses in excess of the at-risk amount are

Answer 20

suspended and carried forward without expiration and are deductible against income in future years from that activity. The at-risk amount is also referred to as basis.

Question 21

On a non-liquidating distribution, a gain is recognized only if -

Answer 21

the cash distributed EXCEEDS the adjusted basis of the partner’s interest in the partnership immediately before the distribution. First you deduct cash paid and then property. Property distributed in excess of adj basis does NOT create a gain.

Question 22

Retirement Plan Contributions for Partners

Answer 22

NOT deductible on 1065, but put on K-1’s